This is sourced from a McKinsey paper called "Cracking the Growth Code in Chemicals". Whether we like it or not "the market" is going to value (benchmark) us against some sector name(s) on some sort of growth profile.
...
"Over the past ten years, only 15 percent of the world’s top 151 specialty and diversified chemical manufacturers grew above the average global GDP growth rate while maintaining a ROIC above the industry weighted average cost of capital (WACC)," according to McKinsey research.
Keep in mind "specialty chemical" ... I'm going to bucket LHM as a specialty chemical
Now according to data sourced from S&P Capital IQ, McKinsey has determined
"some chemical companies outperformed competitors to become what we call “growth champions”: companies with revenue growth exceeding the annual average global GDP growth of 3 percent and ROIC exceeding the average industry WACC of about 7.5 percent ... Only 16 percent of chemical companies—the growth champions—managed to grow above global GDP growth rates while at the same time delivering a ROIC higher than the chemicals industry’s WACC"Looking at this graphically .... and I would like to see us land where the red asterisk is which would "second to one".
and just looking at the Bridging Study its certainly doable.
But why is it important???
per McKinsey (and lots of others)
"Growth champions have also generated significantly higher valuations than other companies. Between 2010 and 2019, the revenue and EBITDA multiples for these companies was 1.5 to 3.0 times higher than the others, suggesting that investors have rewarded them for strong performance."Just that simple ... Wall St rewards Growth and especially profitable growth (the sort of growth that comes from fat margins from a low cost producer).
Again to pick a bucket, I chose "Electronic Chemicals" for LHM for Margin% comparison ... and the range for that group is Low 11%; High 40%; Median of 22% ... so VUL does very very well with 74%
If I use Livent as the benchmark peer ... its refining brines in Argentina into Carbonate (doing some further refining in USA to Hydroxide) and also has hard rock mine/concentrator and hydroxide refiner in Quebec under construction as well as merging with ASX listed Allkem, its ROIC currently is around 20%, clearly kicking ass ... but has yet to feel the really steep drop in Lithium price is its financials
One has to make some estimates for Invested Capital but say our share of Capex (at 50%) and investments to date in IP/VULSORB I'll say is $1B and then NOPAT (Net Operating Profit After Tax) and assuming tax breaks this might be around $150M - $200M ... so 15% - 20%
All of the above makes me what to be invested from a fundamentals perspective. The technical analysis side I don't really deal with other than to check on certain things (like entry points). From a mgmt perspective I like the way this company makes its disclosures.
Like all investments ... risk is ever present. DYOR etc.
(20min delay)
